What's behind the latest trend in foreign-born CEOs?

Commentary about business and finance.
Aug. 17 2007 2:11 PM

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Why are big American companies hiring foreign-born CEOs?

Klaus Kleinfeld. Click image to expand.
Klaus Kleinfeld, Alcoa's new president and COO

Earlier this week, Alcoa, the giant U.S. aluminum maker, appointed Klaus Kleinfeld, the former CEO of German industrial giant Siemens, its new president and chief operating officer—and hence the new CEO-heir apparent. Should Kleinfeld succeed current CEO Alain Belda, it would be a first: the Brazilian CEO of a Dow Jones Industrial Average component handing off stewardship of an iconic U.S. company—Alcoa stands for Aluminum Company of America—to another foreigner.

Gross' first law of journalism holds that any phenomenon found to occur three times is a trend. And clearly, there's a trend of Dow components, the iconic representation of American corporate achievement, appointing non-American CEOs.

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Alcoa started the trend in 1999, appointing Belda, who was born in Morocco, educated in Brazil, and spent much of his career working in Alcoa's Brazilian operations, to succeed Paul O'Neill. In 2004, after several years of lackluster growth, Coca-Cola appointed a non-American, Neville Isdell, as CEO. Isdell's résumé reads like Graham Greene meets Good to Great: Born in Ireland, he went to work for Coca-Cola in 1966 in Zambia and had posts in South Africa, Australia, the Philippines, Germany, and the United Kingdom. He earned an undergraduate degree from the University of Cape Town, and it appears that his first full-time posting in Coca-Cola's Atlanta headquarters came in 2004, when he was named CEO. In March 2005, AIG, the huge insurer, became the third Dow component to appoint a foreign CEO. When legendary CEO Maurice "Hank" Greenberg stepped down, it appointed Martin Sullivan, a British man who started working for AIG in his homeland in 1971 and didn't come to New York until the mid-1990s.

The trend has continued. Not to be outdone by its rival, PepsiCo—which is not a member of the Dow Jones Industrial Average but has greater revenues than Coke—bested Coca-Cola in the global diversity sweepstakes. Last fall it appointed Indra Nooyi, a woman born and educated in India, as CEO. She assumed the role of chairman in May. Nooyi, 51, was educated at Madras Christian College and the Indian Institute of Management before coming to the United States to attend Yale's School of Management in 1978. An American citizen, she wears saris on occasion and retains an accent, which you can hear on this conference call.

In many ways, this trend makes complete sense. Big American businesses—like Alcoa, Pepsi, Coke, and AIG—are already global businesses. Based on data from 238 members of the Standard & Poor's 500 Index, S&P analyst Howard Silverblatt found that the typical member of the index generated 44.2 percent of its sales outside the United States in 2006. And the bigger the company—and the more it has saturated the U.S. market—the more important it is to have a CEO who is comfortable operating around the world. In the second quarter of 2007, Coca-Cola notched 66 percent of its beverage business from outside North America. Alcoa has operations in 44 countries. In its complicated earnings report, AIG doesn't explicitly say which percentage of revenues comes from outside the United States, but with each passing year, the foreign business of American International Group is less American and more international. The notion that American men who have spent their entire careers working in the United States—as is the case with the overwhelming majority of U.S. executives—are ideal candidates to lead such organizations seems increasingly out of date.

And yet, it is somewhat amazing that this crop of CEOs has risen to the top. For all the lip service paid to diversity and globalization, the corporate suites of Fortune 500companies remain a bastion of conformity. (Among the Dow components, there are no women CEOs and only one African-American.) Despite globalization, Americans (and the world, generally) continue to believe that the United States holds something of a monopoly on the efficient management of massive global corporations. It's not too much of a stretch to say that Americans invented the idea (John D. Rockefeller and J.P. Morgan), institutionalized it (the MBA), and continue to make improvements on the model (Jack Welch, Jim Collins, etc.). (If you really want to feel at home when you're abroad, go into the business section of a bookstore—all the titles will be familiar.) The world continues to have great respect for U.S. knowledge and understanding of how to run businesses; MBAs are a major export. Indeed, business schools now play an extremely important function in America's business meritocracy, allowing foreigners and Americans without connections or prior experience to enter the corporate bloodstream.

But these appointments show that, to a degree, large corporations may be displacing MBA programs as the new credentialing factories. None of the CEOs mentioned above has a graduate degree from a U.S. business school, save Nooyi of Pepsi. (Then again, the Yale School of Management regards itself as a public-policy school as much as a B-school.) Martin Sullivan of AIG does not appear to have attended college.

At one time, the immigrant's definition of the American dream was moving to America, working hard, learning the language, buying a home, becoming a citizen, and perhaps starting a small business. Today, that dream might also entail running one of the nation's largest businesses.

Did I miss any? Send your nominations for foreign-born CEOs of major U.S. companies to moneybox@slate.com.

Daniel Gross is a longtime Slate contributor. His most recent book is Better, Stronger, Faster. Follow him on Twitter.